In a significant development, the group of euro zone finance ministers also set out a series of measures to deal with Greece’s debt pile based on short, medium and long-term measures. They included tax hikes, more budget-cutting reforms and a new privatization fund to manage nearly all state property.
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The cash is the latest tranche of the €86 billion promised to Athens past year in exchange for cuts to public spending and structural reforms to its economy in the third bailout programme for the Hellenic Republic.
The bailout rewards Athens for meeting the terms of its €86-billion bailout programme agreed last July.
“The Eurogroup agreed today on a package of debt measures which will be phased in progressively”, said Dijsselbloem.
But, fortunately for Greece, Germany also firmly wanted the pro-reform International Monetary Fund to remain in the bailout and Berlin will have to cede ground on debt relief to achieve that.
Euclid Tsakalotos, Greek finance minister, said he saw “some ground for optimism” for turning “Greece’s vicious circle of recession-measures-recession into one where investors have a clear runway to invest”.
But Germany believes a detailed discussion on debt relief can be held later, and should be made conditional on Greece’s progress with reforms and on data.
“It is something that a month ago I couldn’t have dreamt of that the ministers would have agreed to”, the Eurogroup president Jeroen Dijsselbloem told journalists after the 11-hour meeting.
But in their discussions overnight Tuesday, the Eurogroup finance ministers however did not respond in detail to the International Monetary Fund recommendations on how to achieve “debt sustainability”, only promising general debt relief beginning in 2018.
The first payment of 7.5 billion euro (£5.7 billion) could be made by the middle of next month with other tranches spread over the summer, pending positive reaction from European institutions.
“In a spectacularly sophisticated show of kicking the can down the road, debt relief will be considered – later”, said Paul Donovan, an economist at UBS.
“The deal does not provide much more than a loose roadmap to some sort of debt relief”, he said in a note.
The Eurogroup statement said that the IMF management will “recommend to the fund’s executive board [representing all the IMF member states] to approve a financial arrangement before the end of 2016”.
The IMF had warned Greece’s public debt was unsustainable at current levels of about 180% of its gross domestic product.
Dijsselbloem said it had been a hard political agreement.
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“We will also find a way forward this time”, he said, referring to past bailout agreements. But in that case, the executive board will have to be convinced that Greece is undergoing a sufficient easing of its debt burden to protect the IMF’s resources.
